Health-exchange rate shock

Launch of exchanges has laid bare the high costs of ObamaCare

Starting Oct. 1, Nevadans were able to log onto the Silver State Health Insurance Exchange to begin shopping for one of the policies they are compelled to purchase under the federal Affordable Care Act.

Despite the law’s name, however, many Nevadans are finding that the plans that would be available to them are far more expensive than plans that were previously available.

There are two primary reasons for this. First, the ACA increases the minimum standards of coverage, forcing many individuals to purchase more coverage than they may want or need. Indeed, many individuals who had previously purchased low-cost “mini-medical” plans have seen those plans cancelled since they do not meet the standards for “Essential Health Benefits“ that the ACA now requires.

Second, the “community rating” provisions of the ACA force younger, healthier Americans to subsidize the health-care costs of older and sicker Americans. That’s why relatively young individuals and their families are now discovering that the rates they’ll have to pay are far higher than previously.

For instance, a single, 25-year-old Nevadan would need to pay a monthly premium of at least $184 to be ACA-compliant. In the pre-ACA world, a comparable plan would have been available for around $83. A new analysis from the American Action Forum, led by former Congressional Budget Office director Douglas Holtz-Eakin, shows that all 50 states and the District of Columbia experienced rate increases due to the ACA, with 44 states seeing the lowest-priced coverage more than double in cost. Nationwide, pre-ACA premiums averaged $62 per month, but post-ACA premiums average $187.08 per month.

Up-front tax credits intended to subsidize the high costs of these premiums don’t offer the relief that many young people had been led to expect. A single, 30-year-old male earning about $31,600 would still need to shell out $2,186 in annual premiums even after those subsidies. If his income rises to just $37,350, his annual premium would also rise to $2,839.

It’s interesting that the ACA targets primarily younger families and individuals for such large premium increases. Statistically speaking, this segment of the population has a much lower income level and has accumulated relatively few assets, whereas the older population they are forced to subsidize is relatively more affluent.

Thus, the ACA’s requirement that young people pay more to subsidize the health-care costs of older individuals amounts to little more than a highly regressive, inter-generational wealth transfer.

But the entire success of the ACA hinges on young people agreeing to pay these substantially higher insurance premiums. As Bill Clinton acknowledged, the law only works “if young people show up.” Recognizing this fact, the White House has organized a massive public-relations campaign aimed at convincing young people that it actually makes sense for them to pay more.

After suffering from ObamaCare rate shock, however, many young people are bound to discover that the tax penalties they would face for not purchasing an approved insurance plan are dwarfed by the cost of those plans.

Utilizing a cost-benefit analysis to compare the costs of the increased bronze-level premiums net any subsidies to the costs of the penalties, it becomes clear that in the majority of instances, the cost of bronze-level insurance far exceed [sic] the cost of the penalties … Despite cost-defraying subsidies, the combination of costly premiums and ineffective penalties for noncompliance will likely keep many “young invincibles” from enrolling in the exchanges, and could result in a form of premium spiral.

In other words, if young people balk at the high prices they’re now asked to pay and instead elect to pay the penalty — knowing they can’t be refused coverage should they become ill — then ObamaCare rate shock will grow even more dramatic.

For the past three years, many Americans have been deluded into believing that the ACA would deliver them “free” health care. Now that the exchanges have gone live, however, everyone can see the premiums they would have to pay.

A cold and sobering recognition is starting to emerge: Maybe the ACA isn’t at all what was promised.

Geoffrey Lawrence is deputy policy director at the Nevada Policy Research Institute. For more visit http://npri.org.

Issues

Geoffrey Lawrence is Nevada's Assistant Controller where he oversees the state's financial reporting and transparency efforts along with Nevada's elected controller, Ron Knecht. Geoffrey is a frequent commentator on public policy in print, radio and television news in Nevada and his work appears regularly in publications around the state and the nation. Geoffrey previously served as NPRI's Director of Research and Legislative Affairs until December 2014. He holds an M.A. in International Economics from American University in Washington, D.C. and is currently pursuing an M.S. in Accounting from Western Governors University.